National Bankshares, Inc. Announces Record Earnings for

BLACKSBURG, VA--(Marketwire - February 4, 2010) - National Bankshares, Inc. (NASDAQ: NKSH) announced today that it posted record net income of nearly $14.32 million for the year ended December 31, 2009. Net income for the year is 5.34% higher than the $13.59 million earned by the Company in 2008. Basic net income per share increased from $1.96 last year to $2.07 for 2009. National Bankshares, Inc. ended 2009 with total assets of nearly $982.37 million, an increase of 5.02% over the $935.37 million at December 31, 2008. Net loans, which were at $583.02 million at the end of 2009, experienced a 2.34% increase compared to net loans at year-end 2008. The return on average assets for the twelve months ended December 31, 2009 was 1.47%, and the return on average equity for the period was 12.23%.

For the three months ending December 31, 2009, National Bankshares, Inc. had net income of nearly $3.80 million, or basic net income per share of $0.55. This compares with nearly $3.33 million, or basic net income per share of $0.48, for the same three month period in 2008.

Chairman, President & CEO James G. Rakes commented on the year's financial performance. "Last year, National Bankshares benefited from the fact that our subsidiary community bank, National Bank, maintained its traditional, conservative approach to banking. Record earnings in 2009 came largely from higher net interest income, coupled with limited increases in controllable noninterest expense. We were able to take advantage of the low and stable interest rate environment, and net interest income grew by almost 10.77%, from $31.29 million for 2008 to $34.66 million for 2009. A portion of the growth in interest income came from meeting the credit needs of borrowers in our market area. We experienced $14.33 million of growth in the loan portfolio, as our bankers continued to make good loans despite the difficult economy. At the same time as net interest income was improving, we were keeping careful watch on controllable costs. As a result, total noninterest expense for the year was only $1.83 million above 2008 levels, despite FDIC Deposit Insurance Fund assessments climbing by $1.52 million from 2008 to 2009."

Mr. Rakes continued, "Our region of the country has not totally escaped the effects of the recession and the slow economic recovery. Fortunately, we have not been as seriously impacted as some other areas. In the last half of 2008, we began to see a rise in the level of total nonperforming assets. Anticipating that this trend would continue and worsen during 2009, we increased the provision for loan losses as the year progressed. In 2008, the provision for losses was $1.12 million, and in 2009 we set aside over $1.63 million. By December 31, 2009, the allowance for loan losses had grown to almost $6.93 million from $5.86 million at the end of 2008, and the ratio of the allowance for loan losses to total loans had gone from 1.02% at year-end 2008 to 1.17% at December 31, 2009. Because of this preparation and because our earnings and capital levels allow us to approach loan workouts in a deliberate fashion, we feel that we can respond appropriately to the increase in total nonperforming assets that is being reported for year-end 2009. Although having total nonperforming assets at almost $8.88 million at December 31, 2009 is high for our Company, the total remains quite low when compared with peers. The ratio of nonperforming loans to net loans was at 1.14% at year-end, a reasonable level in today's difficult economy." Mr. Rakes went on to say, "National Bankshares, Inc. is both people focused and value driven. We can trace our heritage back to the founding of National Bank in 1891. Despite the current challenges, we are proud to be traditional bankers, and we are committed to the communities we serve."

National Bankshares, Inc. is a financial holding company that is the parent of National Bank of Blacksburg, which does business as National Bank from 25 offices in Southwest Virginia. National Bank offers a full range of banking products and services, including Trust services. The Company has its headquarters in Blacksburg, Virginia. It also has a financial services subsidiary that does business in the same markets as National Bankshares Investment Services and National Bankshares Insurance Services. Its stock is traded on the NASDAQ Capital Market under the symbol "NKSH." Additional information is available at www.nationalbankshares.com.

Forward-Looking Statements

Certain statements in this press release may be "forward-looking statements." Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results that are not statements of historical fact and that involve significant risks and uncertainties. Although the Company believes that its expectations with regard to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual Company results will not differ materially from any future results implied by the forward-looking statements. Actual results may be materially different from past or anticipated results because of many factors, some of which may include changes in economic conditions, the interest rate environment, legislative and regulatory requirements, new products, competition, changes in the stock and bond markets and technology. The Company does not update any forward-looking statements that it may make.

                National Bankshares, Inc. and Subsidiaries
                        Consolidated Balance Sheet
                                (Unaudited)



($ in thousands, except for per share data)
                                               December 31,  December 31,
Assets                                             2009          2008
                                               ------------- -------------
Cash and due from banks                        $      12,894 $      16,316
Interest-bearing deposits                             32,730        29,656
Federal funds sold                                       ---           ---
Securities available for sale                        168,041       147,227
Securities held to maturity                          129,376       117,772
                                               ------------- -------------
              Total securities                       297,417       264,999
                                               ------------- -------------
Mortgage loans held for sale                             126           348
Loans:
      Real estate construction loans                  45,625        60,798
      Real estate mortgage loans                     165,542       162,757
      Commercial and industrial loans                283,998       246,218
      Consumer loans                                  95,844       106,907
                                               ------------- -------------
             Total loans                             591,009       576,680
      Less: unearned income and deferred fees         (1,062)       (1,123)
                                               ------------- -------------
             Loans, net of unearned income
              and deferred fees                      589,947       575,557
      Less: allowance for loan losses                 (6,926)       (5,858)
                                               ------------- -------------
             Loans, net                              583,021       569,699
                                               ------------- -------------
Bank premises and equipment, net                      10,628        11,204
Accrued interest receivable                            6,250         5,760
Other real estate owned                                2,126         1,984
Intangible assets                                     12,626        13,719
Other assets                                          24,549        21,689
                                               ------------- -------------
            Total assets                       $     982,367 $     935,374
                                               ============= =============

Liabilities and Stockholders' Equity
Noninterest-bearing deposits                   $     122,549 $     109,630
Interest-bearing demand deposits                     310,629       256,416
Savings deposits                                      51,622        45,329
Time deposits                                        367,312       406,473
                                               ------------- -------------
            Total deposits                           852,112       817,848
                                               ------------- -------------
Other borrowed funds                                     ---            54
Accrued interest payable                                 336           655
Other liabilities                                      7,843         6,709
                                               ------------- -------------
           Total liabilities                         860,291       825,266
                                               ------------- -------------

Stockholders' Equity
Preferred stock of no par value. Authorized
 5,000,000 shares; none issued and outstanding           ---           ---
Common stock of $1.25 par value. Authorized
 10,000,000 shares;  issued and outstanding
 6,933,474 shares at December 31, 2009 and
 6,929,474 shares at December 31, 2008                 8,667         8,662
Retained earnings                                    113,901       105,356
Accumulated comprehensive income                        (492)       (3,910)
                                               ------------- -------------
          Total stockholders' equity                 122,076       110,108
                                               ------------- -------------
            Total liabilities and
             stockholders' equity              $     982,367 $     935,374
                                               ============= =============






                National Bankshares, Inc. and Subsidiaries
                    Consolidated Statements of Income
                                (Unaudited)



                           Three Months Ended       Twelve Months Ended
                        December 31, December 31, December 31, December 31,
                            2009         2008         2009         2008
                        ------------ ------------ ------------ ------------
($ in thousands, except
 for per share data)
Interest Income
Interest and fees on
 loans                  $      9,408 $      9,426 $     37,578 $     37,108
Interest on federal
 funds                           ---          ---          ---          ---
Interest on interest-
 bearing deposits                 17           23           90          449
Interest on securities
 - taxable                     1,507        1,641        6,273        6,816
Interest on securities
 - nontaxable                  1,650        1,429        6,546        5,738
                        ------------ ------------ ------------ ------------
     Total interest
      income                  12,582       12,519       50,487       50,111
                        ------------ ------------ ------------ ------------

Interest Expense
Interest on time
 deposits                      1,054        1,502        5,417        6,004
Interest on other
 deposits                      2,208        2,898       10,405       12,802
Interest on borrowed
 funds                             1            1            3           12
                        ------------ ------------ ------------ ------------
     Total interest
      expense                  3,263        4,401       15,825       18,818
                        ------------ ------------ ------------ ------------
     Net interest
      income                   9,319        8,118       34,662       31,293
Provision for loan
 losses                          681          604        1,634        1,119
                        ------------ ------------ ------------ ------------
     Net interest income
      after provision
      for loan losses          8,638        7,514       33,028       30,174
                        ------------ ------------ ------------ ------------

Noninterest Income
Service charges on
 deposit accounts                808          923        3,314        3,425
Other service charges
 and fees                         80           76          343          326
Credit card fees                 743          707        2,803        2,808
Trust income                     261          302        1,053        1,231
Bank owned life
 insurance                       202          238          756          684
Other income                     230          124          491          438
Realized securities
 gains (losses), net             (11)         (14)          44          175
                        ------------ ------------ ------------ ------------
     Total noninterest
      income                   2,313        2,356        8,804        9,087
                        ------------ ------------ ------------ ------------

Noninterest Expense
Salaries and employee
 benefits                      2,927        2,773       11,336       11,168
Occupancy and furniture
 and fixtures                    448          423        1,792        1,751
Data processing and ATM          355          348        1,371        1,381
FDIC  assessment                 298          119        1,727          209
Credit card processing           570          535        2,121        2,105
Intangibles and goodwill
 amortization                    271          278        1,093        1,119
Net costs of other real
 estate owned                    293           36          393          100
Franchise taxes                  219          204          885          823
Other operating expenses         771        1,013        3,135        3,367
                        ------------ ------------ ------------ ------------
     Total noninterest
      expense                  6,152        5,729       23,853       22,023
                        ------------ ------------ ------------ ------------
Income before income
 tax expense                   4,799        4,141       17,979       17,238
Income tax expense             1,004          813        3,660        3,645
                        ------------ ------------ ------------ ------------
     Net income         $      3,795 $      3,328 $     14,319 $     13,593
                        ============ ============ ============ ============

Basic net income per
 share                  $       0.55 $       0.48 $       2.07 $       1.96
                        ============ ============ ============ ============
Fully diluted net
 income per share       $       0.55 $       0.48 $       2.06 $       1.96
                        ============ ============ ============ ============
Weighted average
 outstanding number
 of common shares
     Basic                 6,933,474    6,928,632    6,932,126    6,929,755
                        ============ ============ ============ ============
     Diluted               6,953,970    6,932,755    6,945,530    6,935,950
                        ============ ============ ============ ============
Dividends declared per
 share                           ---          --- $       0.84 $       0.80
                        ============ ============ ============ ============
Dividend payout ratio            ---          ---        40.67        40.78
                        ============ ============ ============ ============
Book value per share             ---          --- $      17.61 $      15.89
                        ============ ============ ============ ============






                         Key Ratios and Other Data
                                (Unaudited)



                           Three Months Ended       Twelve Months Ended
                        December 31, December 31, December 31, December 31,
Average Balances           2009          2008         2009         2008
                        -----------  -----------  -----------  -----------
Cash and due from banks $    11,858  $    12,194  $    11,879  $    12,467
Interest-bearing
 deposits                    27,338       18,879       35,841       21,440
Securities available
 for sale                   167,023      148,292      166,592      157,291
Securities held to
 maturity                   130,924      125,525      131,645      124,076
Mortgage loans held for
 sale                           940          371          911          386
Gross loans                 587,198      562,464      579,766      539,593
Loans, net                  579,633      555,864      572,438      533,190
Intangible assets            12,781       13,878       13,187       14,296
Total assets                969,092      914,111      971,538      899,462
Total deposits              838,866      797,757      846,637      783,774
Other borrowings                 44           55           49          297
Stockholders' equity        122,276      109,445      117,086      108,585
Interest-earning assets     909,411      854,414      913,091      841,675
Interest-bearing
 liabilities                718,632      687,184      731,446      671,463

Financial Ratios
Return on average
 assets                        1.55%        1.45%        1.47%        1.51%
Return on average
 equity                       12.31%       12.10%       12.23%       12.52%
Net interest margin            4.51%        4.20%        4.23%        4.12%
Net interest income -
 fully taxable
 equivalent             $    10,331  $     8,971  $    38,595  $    34,715
Efficiency ratio              48.61%       50.58%       50.32%       50.28%
Average equity to
 average assets               12.62%       11.97%       12.05%       12.07%

Allowance for Loan
 Losses
Beginning balance       $     6,453  $     5,435  $     5,858  $     5,219
Provision for losses            681          604        1,634        1,119
Charge-offs                    (225)        (202)        (647)        (611)
Recoveries                       17           21           81          131
                        -----------  -----------  -----------  -----------
Ending balance          $     6,926  $     5,858  $     6,926  $     5,858
                        ===========  ===========  ===========  =========== 





                            Asset Quality Data
                                (Unaudited)


                                                December 31,  December 31,
Nonperforming assets                                2009          2008
                                                ------------  ------------
Nonaccrual loans                                $      4,098  $      1,333
Restructured loans                                     2,652           ---
                                                ------------  ------------
Total nonperforming loans                              6,750         1,333
Other real estate owned                                2,126         1,984
                                                ------------  ------------
Total nonperforming assets                      $      8,876  $      3,317
                                                ============  ============
Loans 90 days or more past due                  $      1,697  $      1,127
                                                ============  ============

Asset Quality Ratios
Nonperforming loans to loans net of unearned
 income and deferred fees, plus other real
 estate owned                                           1.14%         0.23%
Allowance for loan losses to total loans                1.17%         1.02%
Allowance for loan losses to nonperforming
 loans                                                169.01%       439.46%
Loans past due 90 days or more to loans net
 of unearned income and deferred fees                   0.29%         0.20%

Contact Information: CONTACTS: James G. Rakes Chairman, President & CEO (540) 951-6236 David K. Skeens Treasurer (540) 951-6347

National Bankshares, Inc. Announces Record Earnings for 2009